IPO bankers defied the conventional wisdom in December. And it worked. Bankers borrowed a page from Macy’s playbook, marking down some merchandise to move it out the door during the holiday shopping season.
On Wall Street, it’s long been said that all you need to know about an IPO’s aftermarket performance is to compare its final pricing terms with the previous ones filed with the U.S. Securities and Exchange Commission. If the final terms are higher than the original numbers, expect a pop. If those terms are lower, expect a flop.
But in December, the opposite happened: IPOs got a pop after a cut in pricing terms.
Priced to Sell
Of seven IPOs that were priced and started trading in December, four got done at prices below their original terms. These four deals were cut to meet limited demand – and all four finished their opening day above their IPO prices. Let’s take a look.
On Dec. 15, 2016, Trivago (TRVG), the Dusseldorf, Germany-based company that aims to dominate online search for hotel rooms, priced its IPO of 26.1 million American Depositary Shares (ADS) at $11 each. The IPO raised $287.1 million. Trivago’s final terms were cut from the initial filing of 28.8 million ADS at $13 to $15 each, with plans to raise $399.4 million. The final terms represented a reduction of 28.1 percent from the original proposal. It did not hurt the IPO. On Dec. 16, Trivago opened at $11.20, sold as high as $12.43, and closed at $11.85 – UP 7.73 percent from its IPO price.
On Dec. 13, WildHorse Resource Development (WRD), an oil and gas exploration and production company with assets in Southeastern Texas and Northern Louisiana, priced its IPO of 27.5 million shares at $15 each to raise $412.5 million. Those final terms were cut from the original filing of 27.5 million shares at $19 to $21 each to raise $550 million. That was a reduction of 25 percent from the original proposal. It did not hurt the IPO. On Dec. 14, WildHorse opened at $15.70, sold as high as $16.48, and closed at $15.06 – UP 0.4 percent from its IPO price.
On Dec. 8, Ichor Holdings (ICHR), a Fremont, California-based designer and manufacturer of critical fluid delivery subsystems for semiconductor capital equipment, priced its IPO of 5.88 million shares at $9 each to raise $52.9 million. Those final terms were cut from the initial filing of 5.75 million shares at $12 to $14 each to raise $74.8 million. That was a reduction of 29.3 percent from the original proposal. It did not hurt the IPO. On Dec. 9, Ichor opened at $10.25, sold as high as $11.23, and closed at $9.77 – UP 8.6 percent from its IPO price.
On Dec. 7, SenesTech (SNES), a Flagstaff, Arizona-based company specializing in fertility control for rats, priced its IPO of 1.88 million shares at $8 each to raise $15 million. The deal was cut from its initial terms of 2 million shares at $12 to $14 each to raise $26 million. That was a reduction of 42.3 percent from the original proposal. It did not hurt the IPO. On Dec. 8, SenesTech opened at $8.25, sold as high at $8.52, and closed at $8.16 – UP 2 percent from its IPO price.
An IPO History Lesson
However, not all IPOs behave like December’s class of contrarians. The SEC filings show about 2,756 IPOs were priced between Jan. 1, 2000, and Dec. 16, 2016. Of that number, 948 IPOs were priced below their original offering terms – or about 34.4 percent of the traffic. They produced an average opening-day gain of 1.99 percent.
In contrast, about 1,808 of the IPOs, or about 65.6 percent of the total IPO volume during that nearly 17-year span, produced an average opening-day gain of 30.5 percent.
Looking ahead to the week of Dec. 26th, the IPO Calendar is as clean and green as the space underneath the tree on the day after Christmas. If past history is any indication, the IPO Calendar will remain that way until January 2017 appears.
We will be taking next week off – and we will be back in print on Jan. 1, 2017.
Happy Holidays to one and all!
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinion